Speculation about a post-election rise in value added tax (VAT) has been fuelled by a new report showing Britain has the fourth-lowest rate in the European Union. The report by KPMG says that there is a global trend towards:
- more countries introducing VAT
- VAT rising
- VAT being applied to more goods.
The average rate of VAT in the EU rose to 20 per cent at the start of the year, which compares with 17.5 per cent in the UK, according to the report by KPMG. This would suggest that whoever triumphs in the upcoming Election could find it difficult to not increase VAT - more in line with the EU. KPMG go on to state that Governments will need to shift away from direct taxation towards more indirect traxes (such as VAT).
Gary Harley, head of indirect tax at KPMG in the UK, said: 'Driven by a sluggish economy on the one hand and falling direct tax rates on the other, all around the world governments are reassessing their long-term tax policies.
'The result is that many governments are tightening their existing indirect tax regimes or preparing to introduce new ones.'
Accountants Grant Thornton recently estimated that a rise in VAT to 20% would bring in an extra £12bn a year.